Illinois Tool Works Close To Selling Off Its Industrial Packaging Unit

Take an activist investor, mix in a large, underperforming corporation with numerous business lines and you have all of the ingredients for a spin. Right? Well, roughly a year ago, Illinois Tool Works (ITW) began a process of ‘exploring options’ for its industrial packaging unit as part of its grand five year plan to improve operating performance and shrink its number of operating units. ‘Coincidentally’, Relational Investors, the firm headed by activist Ralph Whitworth, took a stake in the company around the same time. When a company talks about ‘options’ in a case like this, it typically means a spinoff or a sale and roughly half a year later, the company made a choice:

…its board of directors has authorized a plan to commence a sale process for its Industrial Packaging segment. The Company announced in February of this year that it was reviewing strategic alternatives for the segment, which had revenues of approximately $2.4 billion in 2012. As part of today’s announcement, the Company said that it plans to reclassify the Industrial Packaging segment’s businesses to discontinued operations in the third quarter of 2013. The Company expects the sale process to conclude by mid-2014.

“After carefully considering the underlying value of the business, the level of preliminary interest from potential buyers and a favorable debt market, the Company and our board of directors have opted to initiate a sale process for the Industrial Packaging segment,” said E. Scott Santi, president and chief executive officer. “With this move, we are taking a sizeable step in the implementation of our strategy to narrow the focus of our portfolio.”

Mid-2014? Sheesh, who needs that long? The WSJ reported the other day that a ‘handful’ of PE firms, including Apollo Global and the Carlyle Group, were ‘poised to make bids by next week that could exceed $3 billion’. Oh well. It’s worth remembering that despite the recent popularity of spinoffs, companies do have other options in their proverbial toolkits. If deal prices and activity start to heat up, sales might become much more popular options, no matter the tax consequences.

Disclosure: Author holds no position in any stock mentioned

EDIT: An earlier version had the headline ‘Illinois Tool Works Close To Selling Off Its Performance Packaging Unit.’ Whoops, not quite sure where ‘Performance Packaging’ came from or what that would even mean.